ING’s Streetwise Fund v. TD e-Series

The humble Global Couch Potato portfolio, first recommended by MoneySense eight years ago, is an excellent way to get started with indexing. So when ING Direct launched its Streetwise Balanced Fund in 2008, I thought it would be perfect for new investors, since it’s a single fund with the same target allocation: 40% Canadian bonds and 60% equities, divided equally between Canadian, US and international.

The one problem with the Streetwise Funds was cost: with an original MER of 1% (now 1.07% with HST added) they were more expensive than I would have liked. After all, banks already offered index mutual funds with fees in that neighbourhood, and the TD e-Series Funds are dramatically cheaper: you can build the Global Couch Potato for a total cost of just 0.37%.

But four years after the launch of the Streetwise Balanced Fund, it’s worth taking a closer look at how it fared in comparison with the with TD e-Series. Here are the returns:

TD e-Series Streetwise
2008 -14.22% -14.13%
2009 12.00% 10.72%
2010 8.02% 6.52%
2011 0.68% 0.30%
Annual 1.10% 0.40%

As you can see, the Streetwise Balanced Fund underperformed the TD e-Series by 70 basis points annually, which is exactly the difference in MER. But that’s not the whole story. Dig a little deeper and you’ll see that ING Direct’s simple index fund actually fared better than you would think at first blush.

It turns out that almost half of the performance lag can be explained not by cost, but by a subtle difference in asset allocation. The Canadian equity component of the Streetwise Balanced Fund is pegged to the S&P/TSX 60 Index, which includes large-cap stocks only. The TD Canadian Index Fund, on the other hand, tracks the S&P/TSX Composite Index, which includes mid and small caps as well. In each of the last three years, the latter index has outperformed—in both 2009 and 2010 the excess return was well over 3%.

To make a fairer comparison, I re-ran the performance numbers on the Global Couch Potato substituting the Altamira Canadian Index Fund, which tracks the S&P/TSX 60. This time the four-year annualized return fell to 0.81%, resulting in a lag of just 41 basis points for the Streetwise Balanced Fund. For every $1,000 invested, 41 basis points is $4.10 a year.

Notice that the Streetwise Balanced Fund slightly outperformed the Global Couch Potato in 2008: that’s because large caps did better in Canada that year—in fact, they trumped the overall market from 2004 through 2008. Had ING Direct launched its fund in 2004, it likely would have beat the Global Couch Potato over its first five years.

It’s also worth recognizing the Streetwise Balanced Fund’s relatively low tracking error. According to its Management Report of Fund Performance, since its inception four years ago, the fund’s 0.40% annualized return compares with a blended benchmark return of 1.13%. That’s a tracking error of 73 basis points, which is much lower than you would expect from a fund that has an MER of 1.07%, and it closes some of the gap between the Streetwise and TD e-Series funds.

An ideal first step

There’s no question that an experienced index investor can build an ETF portfolio that is far more diversified and much cheaper than the Streetwise Funds, and the TD e-Series are still my first choice for Couch Potatoes who want to use mutual funds. But there is a lot to be said for ING Direct’s simple solution. Unlike TD, which has actively discouraged investors from investing in their index funds, ING Direct makes it extremely easy to open an account, never charges account fees, and imposes no minimum balance, so you can start from zero. And because you’re dealing with one fund instead of four, you can make a single monthly contribution and ignore rebalancing, since that’s done automatically every quarter.

Based on the emails I receive, new index investors face two main obstacles. The first is philosophical: they need to move past the idea that successful investing is about picking the right securities and identifying the “right time” to get in or out of the markets. The second is practical: they need to build a diversified portfolio without incurring fees and transaction costs that will eat up their small account. The Streetwise Funds solve all of these problems. Would I recommend them to someone with investing experience and $50,000? Probably not. But they’re an ideal first step in a lifelong investing plan based on low cost, global diversification, and smart behaviour, and a reminder why MERs are not the whole story.

Disclosure: A member of my household has a small holding in the Streetwise Balanced Growth Fund.

86 Responses to ING’s Streetwise Fund v. TD e-Series

  1. Masoud December 27, 2013 at 10:15 am #

    Currently I bank wih scotiabank and was wondering if I can do copy the td e series method with scotiabank using their index funds. Scotia index funds have a higher MER with around just over 1 percent though. Do you suggest it as a good idea compared to mutual funds if I want to stay with one bank?

  2. Canadian Couch Potato December 27, 2013 at 11:02 am #

    @Masoud: You could so that, but I don’t really see any advantage. The real benefit of the Streetwise Portfolios is that they’re a one-fund solution, so you can make a single automatic contribution and no rebalancing is ever required. Linking your Scotia account to an ING Direct account is extremely easy, so keeping everything at one bank really offers little in the way of convenience:
    http://canadiancouchpotato.com/2013/09/12/the-one-fund-solution/

  3. Bob January 30, 2014 at 1:16 am #

    I am still undecided b/w the two – Streetwise seems simpler, hassle-free… my wife is already banking with TD so I don’t know if that’ll make a difference… I have read a lot of differing comments on the e-Series and the ease or hassle of setting up.

    with about $8000 to initially invest, will the higher fees amount to much? Also noticed performance was better than the Cdn e index and Intl e but not US e.

    I will call both and decide after speaking with them..

  4. Canadian Couch Potato January 30, 2014 at 11:58 am #

    @Bob: It may help to quantify the cost in dollars rather than percentages. The Streetwise Balanced Portfolio would cost $6.30 more per $1,000 invested: so on an $8,000 portfolio it’s about $50 a year more than the e-Series funds. For that extra cost, you get dramatically easier account setup, the convenience of setting up a single automatic contribution, and no need to rebalance because it’s done for you.

    Remember, too, if you access the e-Series funds is through a brokerage account with TD Direct you would pay annual account fees because of the small balance.

    http://canadiancouchpotato.com/2013/09/12/the-one-fund-solution/

  5. Bob January 30, 2014 at 2:36 pm #

    Thanks, CCP.. When you put it like that, it makes a lot of sense and the ING option becomes more tempting.. Now when you factor in the fees that TD would apply to my account, there probably isn’t any difference. I plan to establish this account within an RSP and I know that TD charges $25 per year for RSP under $25K. I am not sure if ING charges a fee for their RSP. Even more reason to go with Streetwise, if it doesn’t!

    How do they compare performance wise over the last 4 years? I think I came across the TD US indes and TD came out on top, but ING came out on top with the CDN and Intl indexes.. are their holdings that much different to account for these difference?

    thanks again! GREAT site you have here… I’m selling it to everyone at work, too!

  6. Canadian Couch Potato January 30, 2014 at 3:00 pm #

    @Bob: No fees on any ING Direct account.

    The holdings of the Streetwise Balanced Portfolio are almost identical to the Global Couch Potato. The only significant difference (as explained in the post) is the Streetwise portfolios hold only large-cap Canadian stocks, but this is a small difference that will work in your favour some years and against you in other years. (In 2012 and 20i3, the ING finds benefited from not having small-cap Canadian stocks). Expect the performance of the two options to be very similar over most periods.

  7. Albert January 31, 2014 at 11:34 am #

    Thanks for the information. You mentioned that you would not recommend Streetwise for someone with experience and 50k. What is the amount that you would switch to the TD eseries? 100k or more? Is the value more in the doller amount or the lack or experience? In my instance I have 150 k and little interest or time for management, would the streetwise be a good option?

  8. Canadian Couch Potato January 31, 2014 at 2:20 pm #

    @Albert: Unless you really value the convenience of the single fund, it probably makes sense to strive for lower costs once you hit $150K. You should assume the additional cost of the Streetwise Portfolios versus the e-Series funds is about 0.60%, or $6 on very $1,000 invested. That should help you decide whether it’s worth it.

  9. Bernard February 2, 2014 at 9:55 am #

    Hi CCP,

    I have about 80k to invest into RRSP this year. I’m not an advanced investor and like the hand-off approach. Would you recommend going with streetwise? Would it be possible to move into e-Series as I get more comfortable with investing?

  10. Canadian Couch Potato February 2, 2014 at 10:22 am #

    @Bernard: I can’t make a recommendation for you specifically. In general, for investors with five-figure portfolios looking for a broadly diversified, low-cost portfolio that requires virtually no maintenance, the Streetwise Portfolios are a great choice. The e-Series funds can indeed lower costs, but they do require more experience navigating a discount brokerage and doing periodic rebalancing.

  11. mike February 2, 2014 at 2:54 pm #

    Hi Dan, about a year ago I remember asking you if there were any etfs that would automatically rebalance to a specific asset allocation and as I recall you referred me to balanced mutual funds. Has anyone brought a comparable balanced etf with low mer that you know of? Thank you for your help. Mike

  12. Canadian Couch Potato February 2, 2014 at 4:42 pm #

    @Mike: There are some ETF “funds of funds” that resemble a balanced portfolio, but I don’t particularly like any of them compared with the index mutual funds available. I just don’t think ETFs are the right structure for a balanced fund. They’re more useful as the individual building blocks of a diversified portfolio.

  13. Bob February 2, 2014 at 4:56 pm #

    Hey folks,

    I ended up going with the e-Series! CCP gave me some sound advice as for the merits of the ING product. However, I was thinking ahead and wondering if the somewhat inflexible reality of the Streetwise family of funds might create some frustration later on… That coupled with the slightly lower MERs of the TD products swayed me to pick the e-Series.

    The process is a little convoluted (as has been pointed out by others here and elsewhere) – the Streetwise is apparently very simple and done online. We ended up calling TDW first to set that account up but we still had to go to the branch. I read a few posts here and elsewhere over the past couple of weeks that suggested it’s best to set up with TDW instead of going to a TD branch and opening up a mutual fund account (then you have to convert it… which is silly to me… we’re all very busy and the less hassle, the better, IMO)

    Anyhow the rep at TD wasn’t really familiar with e-Series… he was probably no more than 21 to top it off! He tried to go into the other funds but I quickly cut him off and said I had researched and made my decision to go with e-Series…

    I will keep you folks posted on the progress… Hopefully by weeks end I’ll be well on my way to retiring with a million bucks in my account!! ;)

  14. Carl February 7, 2014 at 10:21 pm #

    So I have roughly 12K in a tfsa with Ing and another 2k in a streetwise balanced portfolio and auto-buy additional shares on a weekly basis.

    I’m an extreme newbie, should I be creating another streetwise account with a different portfolio, maybe the equity growth portfolio to help diversify my investments?

    Or would you recommend holding off on auto buying right now and rather put money into the tsfa until March 31st as they have there interest promo for 2.5% for any new deposits…And then after the promo I can transfer from my tsfa into the streetwise account?

  15. Canadian Couch Potato February 8, 2014 at 10:43 am #

    @Carl: It all depends on what you’re investing for. If this money is long-term retirement savings, I think it’s safe to say that keeping it in a savings account is not likely to provide the growth you’ll need. But if you think you might be drawing on the money in the next few years, and all-equity portfolio is totally inappropriate.

    http://canadiancouchpotato.com/2010/11/10/ready-willing-and-able-to-take-risk/
    http://canadiancouchpotato.com/2011/08/09/do-you-have-the-right-asset-allocation/

  16. Dave March 1, 2014 at 12:49 pm #

    I have a LIRA with a large investment company in Canada that is one of the most expensive (you can guess which one it is). It has delivered annual average returns to me of precisely 2 percent since I set up the LIRA 8 years ago. I am tired of paying 2.6% MERs to them but not sure whether I am up to managing my LIRA investments on my own. What is the simplest way to move into a couch potato strategy without having to become an instant expert in investing (which I will never be and don’t want to be)?

  17. Canadian Couch Potato March 1, 2014 at 1:10 pm #

    @Dave: If you have no interest in investing the solution may be to find an advisor whose costs are lower than what you’re paying now, and who can manage the investments for you. If you want to DIY, the Streetwise Portfolios are the simplest solution, but they don’t offer a LIRA option. If you open a discount brokerage account and build an index fund portfolio you will need to learn to manage it on your own, which not everyone is prepared to do.

  18. Corey March 13, 2014 at 11:41 am #

    Hi Dave, I’m 22 and an self employed in the music business so I dont ever expect to have a defined pension. I’m a complete newbie at investing so I want (and need) to make my own pension. I can start with 5k then make mothly contributions of $100-150. I like your advice on the ING Streetwise funds because they sound simple and I dont ever have to do anything – which is very big (comforting) to me. The TD E series option is a bit to complicated for me at this point. Should I go in the Streetwise Equity since I’m young and have 35 plus years to let them invest or should I go Balanced (income, portfolio or growth)? The ING portfolio selector picked equity growth but you seem to prefer the balnced porfolios. Thank you sir!

  19. Canadian Couch Potato March 13, 2014 at 12:19 pm #

    @Corey: I don’t have a particular preference for any asset allocation: it all depends on the needs and temperament of the investor. The all-equity portfolio may well be suitable for you if you answered all of the questionnaire honestly and did not overestimate your tolerance for risk. Remember, an all-equity portfolio can lose half its value in major downturn, so just make sure you understand what to expect:
    http://canadiancouchpotato.com/2010/11/10/ready-willing-and-able-to-take-risk/

  20. BOB April 25, 2014 at 2:11 pm #

    ING is no more. I know a new investor who could have benefited. What would you now suggest. Investment would be <50000

    I am an RBC Direct Investment user. They have/are introducing something called the D Series. Please compare to TD e series with comment. Thanks

  21. Canadian Couch Potato April 25, 2014 at 2:44 pm #

    @BOB: ING Direct has changed its name to Tangerine, but the funds remain the same:
    http://www.tangerine.ca/en/investing/investment-funds/index.html

    The RBD D-Series funds have lower fees than the A-Series, but they are still actively managed funds that are not compatible with the Couch Potato strategy.

  22. Brad May 29, 2014 at 2:37 pm #

    I notice Tangerine uses the term RSP, not RRSP. Can you confirm an RSP is exactly the same as RRSP and offer the same tax benefits of an RRSP? If so, why would they use RSP and not RRSP?

  23. Canadian Couch Potato May 29, 2014 at 3:04 pm #

    @Brad: The abbreviations mean the same thing. Sometimes they drop the “Registered” from the name.

  24. Brad June 3, 2014 at 2:46 pm #

    Thanks for clearing that up.

  25. Al June 28, 2014 at 7:46 am #

    Hi CCP – great website and posts. Would you still suggest the Tangerine account vs TD? I have ~$75k that I would like to invest – specifically I’d like to try to make some spendable income on it that I could take out annually – do index funds make sense if you would be pulling money out of it on a semi-regular basis or do dividends make more sense?

    Thanks

  26. Jas September 29, 2014 at 6:15 am #

    So far, I’ve had more success convincing friends with costly financial advisors to switch to DIY investing with a low cost balanced mutual funds than with separated index funds (TD e series).

    Mawer’s balanced mutual fund is actually cheaper than Streetwise’s portfolios: 0.96% MER vs 1.07%. Most people want they easiest solution, and low cost balanced mutual funds fit the bill nicely.

  27. jake September 30, 2014 at 8:47 pm #

    Unless you are mindless, the TD e-funds are much better and cheaper than Streetwise funds. If you don’t know how to track basic asset allocation, you shouldn’t call yourself a DIY investor. Just set your asset mix and rebalance every 3-6 months.

    TD e-funds are the least expensive mutual funds in Canada and charge you nothing to buy or sell.

  28. Canadian Couch Potato October 1, 2014 at 8:59 am #

    @jake: The decision to use a single balanced fund is not mindless. For small accounts, the MER difference may be trivial (about $60 a year on a $10,000 account) and all the rebalancing is done for you. If an investor doesn’t want to get involved in allocating contributions across four different funds and is willing to pay a small cost for that convenience, that’s not a bad decision.

  29. jake October 1, 2014 at 6:32 pm #

    Maybe $60 is insignificant for you, but I will take the cash for 5 minutes of “work” per year. Thanks.

  30. Jas October 1, 2014 at 6:47 pm #

    @Jake: I also believe, just like you, that rebalancing every year my own TD e-series funds portfolio is worth saving a few $$…however, you take this issue too personally…

    The point is that for many investors, even managing by themselves a simple portfolio of TD e series funds is too complicated for them. That doesn’t mean their only alternative option should be working with financial advisors using traditional active funds with high MER over 2-2.5%. Some of them might be perfectly happy with the simple IDY solution using a single low fee balanced fund.

    Their is also a behavioural advantage of the single balanced fund: you are less likely to stress about the occasional underperformances of some of the individual funds.

  31. Jas October 5, 2014 at 4:13 pm #

    @Jake:

    You might find the following article interesting:

    http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/avoid-bad-timing-with-balanced-funds/article13585431/

    “Balanced funds offer something of a behavioural shield.

    By packaging together both stocks and bonds, they help to conceal the volatility of their underlying components. It’s a subtle point that reveals itself when you think about the experience of two investors who ultimately hold the same portfolio.

    The first owns a low-fee balanced index fund.

    The second owns a collection of individual index funds that, in total, mimic the balanced fund in all respects. While their portfolios will yield they same amount of money, they may not feel the same way about their investments.

    The person holding the collection of funds will likely have a few that will lose money in any particular year. But losses tend to be quite painful even if they’re offset by gains elsewhere. They also have a nasty tendency of tempting investors to shuffle their money out of past losers and into past winners.

    On the other hand, the balanced fund investor hides such disappointments from themselves. Instead they keep a firm eye on their overall performance and expose themselves to less timing temptation.

    While balanced funds aren’t a cure-all for the ails of market timing, they do represent a useful tool for new investors and for those who get a little jittery in downturns.”

  32. jake October 5, 2014 at 8:47 pm #

    @Jas

    When most DIYers look at their investment account, they will ultimately look at the bottom line. i.e. my portfolio started at $10,000 and now its $11,000

    Balanced funds are sold, not bought. Smart mutual fund investors are not as stupid as you suggest and will try to minimize fees. It doesn’t take a rocket scientist to know that Streetwise funds cost three times the equivalent exposure achievable with TD’s low cost e-series – unless of course you are related to Peter Aceto.

    Bottom line is you achieve better results with equivalent exposure using TD e-funds

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